(Last Updated On: May 9, 2021)

Subscription agreement automatic renewal clauses seem to be all the rage because it ties your customer to your business and your services or goods.  Raise your hand if you have no more overview of who and what charges you automatically on a monthly basis.  Businesses have the chance for repeat income without much more input on their side.  A typical clause may look like this:

“We’ll automatically bill you from the date you convert to a Paid Account and on each periodic renewal until cancellation. If you’re on an annual plan, we’ll send you a notice email reminding you that your plan is about to renew within a reasonable period of time prior to the renewal date.”

I took this from Dropbox’s terms of service.

But is this practice legal in the great State of New York?  Yes, if you do it right.  (I’m giving no opinion on the above clause.)

What Law governs Automatic Renewal Clauses?

Enter § 527 (A) of the New York General Business Law.  This is a new law and it only became effective February 9, 2021.  Then there is an older law that is also still in effect, New York General Obligations Law § 5-903.

The following only applies to the new law.

When does the Automatic Renewal Clause law apply?

If you have an agreement with a consumer that contains an automatic renewal clause.  A consumer is any individual who seeks or acquires, by purchase or lease, any goods, services, money, or credit for personal, family, or household purposes.  So if your agreement is business to business, you do not fall under this new law.  An automatic renewal clause is an arrangement in which a paid subscription or purchasing agreement is automatically renewed at the end of a definite term for a subsequent term.

What does the Automatic Renewal Clause law require you to do?

Clear and conspicuous manner of pointing out the renewal

You have to present the automatic renewal terms in a clear and conspicuous manner and in visual proximity to the request for consent to the offer.  Clear and conspicuous means in larger type than the surrounding text, or in contrasting type, font or color o the surrounding text of the same size, or set off from the surrounding text of the same size by symbols or other marks, in a manner that clearly calls attention to the language.

Automatic renewal terms means:

that the subscription or purchasing agreement will continue until the consumer cancels;

description of the cancellation policy that applies to the subscription or purchasing agreement;

the recurring charges that will be charged to the consumer;

the length of the automatic renewal term ; and

the minimum purchase obligation, if any.

If the offer also includes a free gift or trial, the offer has to include a clear and conspicuous explanation of the price that will be charged after the agreement pricing will change upon conclusion of the trial.

Consumer’s consent

You have to get the consumer’s affirmative consent to the agreement containing the automatic renewal terms, including the terms of an automatic renewal; or you have to provide an acknowledgment that includes the automatic renewal terms, cancellation policy, and information regarding how to cancel in a manner that is capable of being retained by the consumer. If the offer includes a free gift or trial, the business shall also disclose in the acknowledgment how to cancel and allow the consumer to cancel before the consumer pays for the goods or services.

You have to provide a toll-free telephone number, email address, a postal address only when the seller directly bills the consumer or another cost-effective, timely, and easy-to-use mechanism for cancellation.

A consumer who accepts an automatic renewal must be allowed to terminate the automatic renewal exclusively online, which may include a termination email formatted and provided by you that a consumer can send to you without additional information.

What are the consequences if you fail to follow the Automatic Renewal Clause law?

If you send any goods, wares, merchandise, or products to a consumer, under an automatic renewal of a purchase, without first obtaining the consumer’s affirmative consent, the goods, wares, merchandise, or products are deemed an unconditional gift to the consumer.

The attorney general can enforce this law and issue penalties of $100 for a single violation and not more than $500 dollars for multiple violations resulting from a single act or incident. A knowing violation of this section is punishable by a civil penalty of not more than f$500 for a single violation and not more than $1000 for multiple violations resulting from a single act or incident.

You can defend yourself against violations by showing that the violation was not intentional and resulted from a bona fide error made notwithstanding the maintenance of procedures reasonably adopted to avoid such error.

There does not seem to be a private right of action as of now, but what this does is open the door for class actions by consumers.

Photo by @Maignat

About Imke Ratschko


Imke Ratschko is a New York Attorney helping small businesses, business owners and entrepreneurs with all things "Small Business Law," such as litigation, contracts, business owner disputes, shareholder and operating agreements, sale or purchase of a business, investors, and starting a business. You can reach her at 212.253.1027 or by email.